Is Health Care Reform Fiscal Reform?

Greg Mankiw mocks the muddled thinking of health-reform advocates.

I have a plan to reduce the budget deficit. The essence of the plan is the federal government writing me a check for $1 billion. The plan will be financed by $3 billion of tax increases. According to my back-of-the envelope calculations, giving me that $1 billion will reduce the budget deficit by $2 billion.

Now, you may be tempted to say that giving me that $1 billion will not really reduce the budget deficit. Rather, you might say, it is the tax increases, which have nothing to do with my handout, that are reducing the budget deficit. But if you are tempted by that kind of sloppy thinking, you have not been following the debate over healthcare reform.

His point seems to be that if the health care law can be called fiscal reform, as advocates claim, then this ridiculous handout plan can also be called fiscal reform--which would be absurd, or so he asks us to believe.

This is not up to Mankiw's usual standards.

First, it is not wrong to ask about the fiscal consequences of a package of policy changes. This is standard operating procedure in costing legislation, and I see no reason to object. In the case of health care, the tax increases and subsidies are in the same law. Even in Mankiw's satirical example, the tax increases and the handout are of a piece: it is simply incorrect to say that they have nothing to do with each other.

Second, why is it absurd to call the handout plan a fiscal reform? If it reduces the deficit, then, yes, it is a deficit-reducing fiscal reform. Obviously, it is a particularly stupid deficit-reducing fiscal reform, but so what? Perhaps Mankiw's point is merely that a policy can be bad even though it cuts the deficit. If so, he's right--but who ever denied this?

Ezra Klein attacks the same post, but for weak reasons. He calls Mankiw callous for his "apparent belief that subsidizing insurance is akin to an extravagant giveaway to the rich". Oh, please. As for Klein's point that Mankiw's post reveals an "accidental truth" about why Mankiw worked for the Bush administration, I find this reasoning even harder to follow than the original post.

Moving past Mankiw's attempted reductio, he believes that ACA is in fact likely to increase the deficit, CBO projections notwithstanding. He recommends this WSJ piece by Douglas Holtz-Eakin and others.

This could be right, but let us agree with the CBO that the range of uncertainty is wide. The reform might reduce the deficit, and restrain health costs more broadly too, if it really did spur innovations of the kind described in Atal Gawande's latest fine piece for the New Yorker--and if these ideas were widely taken up, and if every other good thing the act envisages comes to pass. My own guess is that it will take improbably zealous execution, constant vigilance, and further legislation too for this rosy scenario to come true, and I rate the chances of all that working out pretty low. Also bear in mind, since the plan will be amended in Congress and revised administratively every which way, and since the counterfactual of no ACA will be unavailable, we might never know whether ACA in the form just passed would have been deficit-reducing or deficit-increasing. It's guesswork now, and probably always will be.

As I say, my own guess would be deficit-increasing--and, if taxpayers are unlucky, very much so. But here's the thing: I'm for it anyway. If universal coverage turns out to cost more than the plan's advocates say, it's still worth it. That's right. Policies that increase the deficit can be good policies, just as policies that reduce it can be bad.

As obvious as that may be, and despite enormous uncertainty over the fiscal projections, nearly everyone opposed to this reform for non-budgetary reasons is sure that it will increase the deficit, and nearly everyone in favor for non-budgetary reasons is sure it will cut it. Just a coincidence, I expect.